By Sophie Yun • Monday, August 04, 2014 | Topic: World
Experts estimate the Chinese have developed more than 1,700 projects in Africa between 2000 and 2011.(1) And National Public Radio recently aired a report detailing China’s growing ambition there, indicating that the continent is not only a place with abundant natural resources, but now a potential giant market for Chinese consumer goods. American businesses should take note of the critical shift in China’s African strategy.
Africa’s Economic Boom
China’s amplified activities have encouraged as well as benefited from Africa’s strong economic performance in recent years. Most African countries are increasingly focusing on economic development. Utilizing their advantages of abundant natural resources for trade, they are opening their markets to foreign investors. This virtuous economic cycle has put in place the climate for much of Sub-Saharan Africa to boom.
Over the past ten years, real income per capita increased by more than 30 percent even against the backdrop of a global economic recession in 2008. Africa as a whole is now one of the world’s fastest growing economies. Growth measured by GDP is expected to average over 6 percent a year for the foreseeable future, well beyond the global average. Foreign direct investment (FDI) has surged from $15 billion in 2002 to $43 billion in 2013.(2)
China’s Evolving African Strategy
The African continent is undergoing a fundamental change with regards to its economic development. Many African countries are benefiting from a commodities surge, driven by increased demand from China, which has become Africa’s biggest trading partner. Over the past decade, African trade with China has risen from $11 billion to over $200 billion. Copper-rich Zambia and oil-soaked Ghana are using full coffers to pay for new schools and hospitals, and other infrastructure development.
China appears to have evolved from an original strategy of using Africa primarily as a source for raw materials to pursuing more aggressive business opportunities that generate profits, while extending its influence on politics, the economy, and academic resources. It would be unwise for the U.S. to ignore such trends and lose out on what may become one of the largest consumer markets in the world. Reports predict that Africa will have the fastest growth of a middle class population than any other region in the world. The continent should become an enormous consumer market for foreign made products.
America’s Position in Africa
China realizes the importance of Africa and is quickly exploiting its presence in the region by aggressively introducing its products and consumer brands where it faces only tepid competition from the traditionally entrenched U.S. and Western European brands. In little more than a generation, American products and brands have gone from being the benchmark to that of being viewed as overpriced and generally unsupported also-rans. It is critical for the U.S. to get more involved in trading with this important emerging market. The Obama Administration has recently taken some initiative that suggests policy makers in Washington, DC are beginning to take notice.
One example of America’s reawakened interest is Power Africa.
In a recent discussion with the CEO of ExWorks Capital, a specialty lender that focuses on financing U.S. exports, Mr. John McAdams expressed his company’s intention to aggressively seek opportunities to support exports to Africa. McAdams said, “Unlike some U.S. companies looking at Africa as a scary place, we see tremendous opportunities if managed and mitigated properly.” As the former COO and Vice Chairman of the U.S. Export-Import Bank (Ex-Im Bank), he has been intimately involved in many of the efforts the U.S. government has made to support economic development in Africa. He continued, “By using the right financing tools, U.S. companies should feel confident in exporting to this immense market.”
U.S. Government Supporting Business and Africa
One example of America’s reawakened interest is Power Africa. This $7 billion initiative was created by the U.S. government to double the access to power in the African continent by 2020. The initiative is led by U.S. Agency for International Development (USAID), the Overseas Private Investment Corporation (OPIC), and Ex-Im Bank. In just one year OPIC has committed to provide financing for a wind farm project in Kenya as well as a range of renewable power projects in Ethiopia, Namibia, and South Africa. The wind farm project in Kenya alone is expected to increase power capacity in that country by 20 percent.
Ex-Im Bank, as the official export credit agency, has signed MOUs with African governments reassuring them of its interest in facilitating financing, especially in the green energy sector. In 2012, it signed an MOU with the Industrial Development Corp. of South Africa (IDC) to encourage more U.S. exports and their financing to support the development of the South African’s energy sector.
Under the agreement, ExIm Bank will provide up to $2 billion of financing to South African buyers that purchase U.S. goods and services. Over the past four fiscal years, ExIm Bank has authorized more than $4 billion in financing to support U.S. exports to Sub-Saharan Africa.
Effective government policies from the U.S. government along with American business no longer writing off Africa as an afterthought will be critical if America is to catch up with China in the region. American businesses need to wake up to the fact there are enormous market opportunities beyond the oil rich West African coast and the developed market of South Africa. Just as American businesses saw and went after opportunities in China 20-30 years ago, they need to recognize that in this forgotten continent there is essentially another market the size of China ready to be supplied and supported by American interests.
Footnotes: 1. http://china.aiddata.org. 2. www.worldbank.org